Case 4:16-cv RGE-SBJ Document 42 Filed 10/13/17 Page 1 of 20

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1 Case 4:16-cv RGE-SBJ Document 42 Filed 10/13/17 Page 1 of 20 IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF IOWA CENTRAL DIVISION DEBORAH INNIS, on behalf of the Telligen, Inc. Employee Stock Ownership Plan, and on behalf of a class of all other persons similarly situated, v. Plaintiff, BANKERS TRUST COMPANY OF SOUTH DAKOTA, a South Dakota Corporation, Defendant. No. 4:16-cv RGE-SBJ ORDER RE: DEFENDANT S MOTION TO DISMISS I. INTRODUCTION Plaintiff Deborah Innis brings this suit against Bankers Trust Company of South Dakota challenging its actions as a trustee of her employer s Employee Stock Ownership Plan. Innis alleges trustee Bankers Trust engaged in prohibited transactions forbidden under ERISA. Defendant Bankers Trust moves for dismissal of the suit. ECF No. 21. Plaintiff resists. ECF No. 32. On June 16, 2017, the matter came before the Court for hearing. Hr g Def. s Mot. Dismiss Mins., ECF No. 39. Attorneys Jason Craig, Lars Golumbic, and Natasha Fedder appeared on behalf of Bankers Trust and argued in support of its motion. Id. Attorneys Matthew Preston and Ryan Jenny appeared on behalf of Innis and argued in resistance to Defendant s Motion to Dismiss. Id. For the reasons set forth below, the Court grants in part and denies in part Bankers Trust s Motion to Dismiss. The Court holds Innis has standing to pursue her claim. The Court also holds

2 Case 4:16-cv RGE-SBJ Document 42 Filed 10/13/17 Page 2 of 20 Innis succeeds in pleading a claim under 29 U.S.C. 1106(a), but fails to state a claim under 29 U.S.C. 1106(b). 1 II. STATEMENT OF RELEVANT FACTS Innis brings one claim alleging Bankers Trust engaged in prohibited transactions forbidden under the Employee Retirement Income Security Act of 1974 (ERISA). See Compl , ECF No. 1; 29 U.S.C Bankers Trust argues the claim should be dismissed for two reasons: 1) Innis lacks standing, and 2) Innis s complaint fails to state a claim upon which relief can be granted. Innis was a Telligen, Inc. employee. ECF No. 32 at 3; see ECF No. 1 2, 15. Telligen is a privately-held Iowa corporation, headquartered in West Des Moines. See ECF No. 1 5, 14. Telligen is a health management company that, at the relevant time, served four large populations, including Iowa Medicaid, Oklahoma Medicaid, Iowa Medicare[,] and Illinois Medicare. Id. 14. Telligen was formerly a nonprofit corporation Telligen Community Initiative (TCI) and converted to a corporation Telligen, Inc. prior to December 31, Id ; Def. s Br. Supp. Def. s Mot. Dismiss 4, ECF No. 22. As a corporation, Telligen established an Employee Stock Ownership Plan (ESOP) (the Plan). See ECF No. 1 15; ECF No. 22 at 4. Bankers Trust serves as the trustee of the Telligen ESOP Plan. ECF No An ESOP plan is a defined contribution employee benefit retirement plan, regulated under ERISA. 26 U.S.C. 4975(e)(7) (Internal Revenue Code definition of ESOP); 29 U.S.C. 1107(d)(6) (ERISA definition of ESOP). ERISA aims to protect the interests of employees and their beneficiaries in their retirement investments, including ESOPs, by establishing strict 1 ERISA cases sometimes cite sections of ERISA as they appear in both the Statutes at Large, see Pub. L. No , 88 Stat. 829, and as codified in the United States Code, see 29 U.S.C The Court will cite to the United States Code provisions. 2

3 Case 4:16-cv RGE-SBJ Document 42 Filed 10/13/17 Page 3 of 20 standards of conduct, responsibilities[,] and obligations for fiduciaries of [ERISA] plans. Reich v.hall Holding Co., 990 F. Supp. 955, 957 (N.D. Ohio 1998) (citing 29 U.S.C. 1001(b)); accord Harley v. Minn. Mining & Mfg. Co., 284 F.3d 901, 907 (8th Cir. 2002) (stating [t]he primary purpose of [ERISA] is the protection of individual pension rights (alterations in original) (quoting H.R. Rep. No (1974), reprinted in 1974 U.S.C.C.A.N. 4639, 4639)). ESOPs are both an employee retirement benefit plan and a technique of corporate finance... encourag[ing] employee ownership. Martin v. Feilen, 965 F.2d 660, 664 (8th Cir. 1992) (quoting 129 Cong. Rec. S16629, S16636 (daily ed. Nov. 7, 1983) (statement of Sen. Long)) (noting the criticisms of ESOPs). On December 31, 2013, TCI entered into a stock purchase agreement and sold all shares in Telligen, Inc. to the ESOP Plan (the Transaction). Def. s App. Suppl. Mot. Dismiss 16, ECF No. 23. As part of the stock purchase agreement, TCI merged with an interim company, Telligen Interim, LLC, which then merged with Telligen, Inc. Id. The stock purchase agreement names the seller as TCI (pre-merger) and the purchaser as the Plan (Telligen, Inc. Employee Stock Ownership Trust). Id. The per-share purchase price for the 1 million shares of stock was $ Id. To acquire the shares, the Plan took on a 20-year loan of $37,500,000, accruing 6% annual interest. See id. at (Stock Purchase Agreement and ESOP Loan and Pledge Agreement); ECF No Bankers Trust engaged Prairie Capital Advisors to conduct valuations of the Telligen stock. ECF No. 22 at 4. Prairie Capital valued the Telligen stock prior to the Transaction and also conducted annual valuations to determine the fair market value of Telligen stock as of the close of each plan year, as well as occasional mid-year valuations. Id. at 5 & n.1. As of January 31, 2014, Prairie Capital valued the Telligen shares at $6.25 per share. ECF No. 23 at 7. As of December 31, 2014, Prairie Capital valued the shares at $16.63 per share. Id. at 8. On June 22, 3

4 Case 4:16-cv RGE-SBJ Document 42 Filed 10/13/17 Page 4 of , Innis sold all of her shares for $6,354.68, equating to $18.46 per share. See id. at 9, 26. As of December 31, 2015, Telligen stock was valued at $25.98 per share. Id. at 9. Innis brings the present suit on behalf of the plan alleging Bankers Trust engaged in prohibited transactions forbidden by ERISA in violation of 29 U.S.C. 1106(a) and (b). ECF No III. LEGAL STANDARDS Bankers Trust first asserts Innis s complaint should be dismissed under Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction because she lacks standing. Innis, as the plaintiff, bears the burden of proving subject matter jurisdiction. V S Ltd. P ship v. Dep t of Hous. & Urban Dev., 235 F.3d 1109, 1112 (8th Cir. 2000). Bankers Trust asserts a factual subjectmatter jurisdiction challenge. ECF No. 22 at 6 7; see also Branson Label, Inc. v. City of Branson, 793 F.3d 910, (8th Cir. 2015) (distinguishing facial and factual attacks). When a party asserts a factual challenge, the court may consider matters outside the pleadings. Osborn v. United States, 918 F.2d 724, (8th Cir. 1990). The court must weigh the evidence and satisfy itself as to the existence of its power to hear the case. Id. at 730 (quoting Mortensen v. First Fed. Sav. & Loan Ass n, 549 F.2d 884, 891 (3d Cir. 1977)). The standing doctrine serves to ensure the authority of the federal courts extends only to cases and controversies, as mandated by Article III of the United States Constitution. U.S. Const. art. III, 2; accord Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016). In practice, standing functions as a threshold question a litigant invoking federal jurisdiction must satisfy before the court may hear the case. Warth v. Seldin, 422 U.S. 490, 498 (1975). The irreducible constitutional minimum of standing is that a plaintiff show (1) an injury-in-fact that (2) is fairly... trace[able] to the challenged action of the defendant and (3) is likely... [to] be redressed by a favorable decision in court. ABF Freight Sys., Inc. v. Int l Bhd. of Teamsters, 4

5 Case 4:16-cv RGE-SBJ Document 42 Filed 10/13/17 Page 5 of F.3d 954, 958 (8th Cir. 2011) (alterations in original) (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, (1992)). The burden of these three elements together ensure[s] that federal courts do not exceed their authority as it has been traditionally understood... [and] limits the category of litigants empowered to maintain a lawsuit in federal court to seek redress for a legal wrong. Spokeo, 136 S. Ct. at In statutory standing cases such as this, a plaintiff who seeks relief for violation of a statute must fall[] within the class of plaintiffs whom Congress has authorized to sue under that statute. Tovar v. Essentia Health, 857 F.3d 771, 774 (8th Cir. 2017) (alteration in original) (quoting Lexmark Int l, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377, 1387 (2014)). Bankers Trust s 12(b)(1) motion focuses on the first of standing s three elements injury in fact. See ECF No. 22 at To demonstrate an injury in fact, a plaintiff must show an invasion of a legally protected interest that is both concrete and particularized as well as actual or imminent, not conjectural or hypothetical. Lujan, 504 U.S. at 560 (internal quotation marks omitted). The Supreme Court has emphasized repeatedly that an injury must be concrete in both a qualitative and temporal sense. Whitmore v. Arkansas, 495 U.S. 149, 155 (1990). Such an injury must be distinct and palpable, as opposed to merely [a]bstract. Id. (alteration in original) (citations and internal quotation marks omitted). In other words, the injury in fact test requires more than an injury to a cognizable interest. It requires that the party seeking review be himself among the injured. Sierra Club v. Morton, 405 U.S. 727, (1972). Alternatively, Bankers Trust asserts Innis s claim should be dismissed under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The essential function of a complaint under the Federal Rules of Civil 5

6 Case 4:16-cv RGE-SBJ Document 42 Filed 10/13/17 Page 6 of 20 Procedure is to give the opposing party fair notice of the nature and basis or grounds for a claim, and a general indication of the type of litigation involved. Topchian v. JPMorgan Chase Bank, N.A., 760 F.3d 843, 848 (8th Cir. 2014) (internal quotation marks omitted) (quoting Hopkins v. Saunders, 199 F.3d 968, 973 (8th Cir. 1999)). The court must accept as true all factual allegations in the complaint, but not its legal conclusions. Iqbal, 556 U.S. at (citing Twombly, 550 U.S. at ). A plausible claim for relief allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. at 678. A plaintiff must nudge[ ] their claims across the line from conceivable to plausible, [else] their complaint must be dismissed. Twombly, 550 U.S. at 570. Where a complaint pleads facts that are merely consistent with a defendant s liability, it stops short of the line between possibility and plausibility of entitlement to relief. Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557). Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice. Id. IV. DISCUSSION A. Lack of Standing Bankers Trust contends Innis lacks standing because 1) Innis did not suffer personal loss entitling her to monetary relief, and 2) Innis did not allege a real and immediate threat of future harm necessary to maintain a claim for injunctive or declaratory relief. ECF No. 22 at Constitutional standing In support of its first grounds for lack of standing, Bankers Trust states Innis no longer owns her shares and the shares increased in value during her ownership, so she did not experience a personal monetary loss amounting to an injury in fact. ECF No. 22 at 7 9. Bankers Trust states an initial valuation of $37.50 per share does not account for the leveraging of the shares and thus cannot be used to demonstrate injury to Innis. Id. at 9 11 (reciting an example of a homebuyer s 6

7 Case 4:16-cv RGE-SBJ Document 42 Filed 10/13/17 Page 7 of 20 equity in a home before and after purchasing the property on a mortgage). Thus, the Court should not rely upon the decrease from $37.50 to $6.25 per share valuation to demonstrate injury. See id. Innis responds her status as a Plan participant and her allegations tracing Bankers Trust s conduct to her injury is sufficient to demonstrate standing. ECF No. 32 at 1 2, 8 9. Innis relies on the Eighth Circuit s holdings in Braden v. Wal-Mart Stores, Inc., 588 F.3d 585 (8th Cir. 2009). ECF No. 32 at 8 9. She states it is well-settled that [i]n this type of private company ESOP case, damages are measured by what the plan paid for the stock minus what it should have paid, that is, its fair market value on the transaction date. Id. at (citing Perez v. Bruister, 823 F.3d 250, 265 (5th Cir. 2016); Chao v. Hall Holding Co., 285 F.3d 415, 420, 444 (6th Cir. 2002); Donovan v. Bierwirth, 754 F.2d 1049, 1054 (2d Cir. 1985); Neil v. Zell, 767 F. Supp. 2d 933, , 950 (N.D. Ill. 2011)). Innis distinguishes contrary precedent by pointing to the status of Telligen as a private, closely-held corporation. Id. at 11 n.4. She asserts market timing is never an issue for private company ESOPs and all [Plan] participants are similarly situated. Id. Innis states Bankers Trust does not challenge her allegation that [Bankers Trust] was responsible, as Trustee, for the stock valuation and authorization of the transaction that [Innis] alleges caused losses to her account because the Plan overpaid for the stock. Id. at 9. She contends this concession paired with the facts establishing her injury are sufficient to establish constitutional standing and any remaining factual issues go to the merits. Id. In arguing whether Innis suffered an injury, the parties dispute whether Innis was allocated Telligen stock on the date of the Transaction, or at a later date. Innis points to Bankers Trust s own appendix showing an Account Balance as of December 31, 2013 of shares in Innis s Company Contribution Account. ECF No. 23 at 7; ECF No. 32 at 9. Bankers Trust responds the document showing Innis held shares on December 31, 2013, is a backwards looking legal fiction 7

8 Case 4:16-cv RGE-SBJ Document 42 Filed 10/13/17 Page 8 of 20 created to benefit [Innis] and other Plan participants for tax purposes and that the ESOP did not make its initial loan payment, until February 12, Def. s Reply Br. Supp. Def. s Mot. Dismiss 2 3, ECF No. 35. Bankers Trust concludes because [Innis] did not hold any Company stock in her ESOP account until after the Transaction closed, she cannot establish injury by pointing to the decrease in the Company s equity value that occurred immediately upon the closing of the Transaction. ECF No. 22 at 11. Based on the Eighth Circuit s holding in Braden v. Wal-Mart, whether Innis has standing does not hinge on whether she owned shares on December 31, 2013, because Innis alleges the Plan s actions, even if taken prior to her ownership, caused her subsequent injury. See Braden, 588 F.3d at 592 (considering standing and finding [a]t this stage in the litigation it is impossible to say when any particular claim occurred in the sense of when the action giving rise to it began or ended ). In Braden, the Eighth Circuit overruled the district court s holding and found a plaintiff had standing to pursue a claim for imprudent investment and breach of fiduciary duty because the plaintiff alleged an actual injury fairly traceable to the defendant s actions. Id. The court noted the plaintiff s alleged injury was not limited to the period in which he personally suffered injury. Id. at 592 n.4 ( It is true that [the plaintiff] could not have suffered injury before he began participating in the Plan, but that does not mean actions taken earlier cannot have caused his subsequent injury. ). The Court concludes Innis has satisfied the requirements of Article III standing because she has alleged an injury traceable to Bankers Trust s conduct and 1132 provides her a remedy. Like the plaintiff in Braden, Innis alleges an actual injury to her own Plan account: the purchase of 1 million shares at $37.50 per share allegedly more than fair market value. ECF No. 1 3, 41; see also ECF No. 32 at 5, 9. Innis asserts this prohibited transaction caused the Plan to become 8

9 Case 4:16-cv RGE-SBJ Document 42 Filed 10/13/17 Page 9 of 20 saddled with a $37,500,000 loan, equating to millions of dollars of losses. ECF No , 37. Innis states she, and other Plan participants, suffered a diminution in the value of her Plan account because the Plan plunged in value after purchasing Telligen stock for more than fair market value, and she continues to suffer such losses in the present because Bankers Trust failed to correct the overpayment by the Plan in its time as trustee. ECF No This is an injury sufficient to support standing. Innis s purported injury is fairly traceable to Bankers Trust s conduct. See ECF No ; ECF No. 23 at 16 (naming Bankers Trust as the trustee for the Plan, where the Plan was the purchaser in the Transaction). Innis s allegations are distinguishable from the allegations in Brown v. Medtronic, Inc., where the Eighth Circuit affirmed the plaintiff lacked standing for specific claims. 628 F.3d 451, (8th Cir. 2010). The Brown plaintiff alleged the defendants failed to disclose information regarding the products the employer manufactured a bone graft material and wire for defibrillators and pacemakers and this nondisclosure caused an inflated stock value. Id. at The Eighth Circuit held the plaintiff lacked standing to bring claims relating to the bone graft material, but had standing for the claims related to the wires. Id. at The court based its differing holdings on whether the change in stock price was fairly traceable to the alleged wrongdoing. Id. In evaluating standing, the Brown court cautioned against analyzing damages []or requiring a plaintiff to prove proximate cause. Id. at 459. Unlike the ESOP plan in Brown, Telligen is not a public company, making any changes in value easier to trace to Bankers Trust s alleged wrongful conduct. Cf. 628 F.3d at 458. The Supreme Court has noted the market price of a publically traded stock is an unbiased assessment of the security s value in light of all public information. Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459, 2471 (2014) (quoting Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 9

10 Case 4:16-cv RGE-SBJ Document 42 Filed 10/13/17 Page 10 of , 2411 (2014)); see also id. at 2472 (reversing the appellate court s decision to deny dismissal for failure to state a claim as based on an erroneous understanding of the prudence of relying on market prices ). Privately-held stock prices do not provide this informational value. Thus, based on the information before the Court, the drop from $37.50 per share at the time of the Transaction to $6.25 in January 2014 alleges conduct fairly traceable to Bankers Trust. 2 Furthermore, 1132(a)(2) provides Innis a right to judicial relief. Innis seeks to recover as a representative for the Plan participants; Innis fall[s] within the class of plaintiffs whom Congress has authorized to sue. Tovar, 857 F.3d at 774 (quoting Lexmark Int l, Inc., 134 S. Ct. at 1387). As provided for in 1109, a fiduciary who breaches a duty shall be personally liable to make good to such plan any losses to the plan resulting from each such breach... and shall be subject to such other equitable or remedial relief as the court may deem appropriate. 29 U.S.C. 1109(a). A plaintiff, such as Innis, seeking relief under 1132(a)(2) acts in a representative capacity on behalf of the plan as a whole, because the remedies for breach of fiduciary duty found in 1109 are designed to protect the entire plan[.] Mass. Mut. Life Ins. v. Russell, 473 U.S. 134, 142 & n.9 (1985); see also Braden, 588 F.3d at 593; Adamson v. Armo, Inc., 44 F.3d 650, 654 (8th Cir. 1995) ( A participant... is defined in ERISA as someone who is or may become eligible to receive a benefit of any type from an employee benefit plan. (quoting 29 U.S.C. 1002(7)). Here, Innis alleges Bankers Trust s breach caused injury to the Plan. As impliedly required under 2 Bankers Trust submitted supplemental authority following the hearing. Def. s Notice Suppl. Authority Supp. Def. s Mot. Dismiss, ECF No. 40; see also Pl. s Resist. Def. s Notice Suppl. Authority, ECF No. 41. The Court finds this authority unpersuasive as it carries no precedential value. Def. s Ex. A Supp. Notice Suppl. Authority, ECF No. 40-1; Swain v. Wilmington Trust, N.A., No RGA MPT, 2017 WL (D. Del. Aug. 14, 2017). This opinion is a report and recommendation to which the plaintiffs have objected; a district judge must review the decision de novo. Fed. R. Civ. P. 72(b)(3); Pls. Objs. R. & R., No. 1:17-cv-071 (D. Del. Sept. 1, 2017), ECF No. 22; see also ECF No

11 Case 4:16-cv RGE-SBJ Document 42 Filed 10/13/17 Page 11 of , Innis s relief will stand or fall with that of the Plan because 1132(a)(2) does not provide a remedy for individual injuries distinct from plan injuries. Braden, 588 F.3d at 593 (quoting LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S. 248, 256 (2008)). At bottom, the gist of the question of standing is whether [a plaintiff has] such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the court so largely depends for illumination. Massachusetts v. EPA, 549 U.S. 497, 517 (2007) (quoting Baker v. Carr, 369 U.S. 186, 204 (1962)); Merrimon v. Unum Life Ins. of Am., 758 F.3d 46, (1st Cir. 2014) (discussing a history of exercising jurisdiction over ERISA and, relatedly, trust cases). Innis has a personal stake in the outcome of this controversy, and ERISA provides her an appropriate method for recovery, satisfying the concerns of Article III. 2. Standing for injunctive and declaratory relief Bankers Trust also asserts Innis is not entitled to declaratory or injunctive relief because she does not allege any real or immediate future threat of harm. ECF No. 22 at Bankers Trust states Innis s claim describes past alleged prohibited transactions. Id. Bankers Trust requests dismissal with prejudice as a remedy. Id. at 13. Innis responds injunctive and declaratory relief are available under ERISA beyond [Innis s] own injury because she seeks relief for the entire Plan under 1132(a)(2). ECF No. 32 at (quoting Braden, 588 F.3d at 593). Innis states [s]he does not have an additional standing burden of proof on the forms of injunctive and declaratory relief. Id. at 12. Innis compares her standing to the plaintiff s standing in Braden and asserts other Plan participants may be entitled to injunctive or declaratory relief even if she individually is not. See id. at Innis points to the 11

12 Case 4:16-cv RGE-SBJ Document 42 Filed 10/13/17 Page 12 of 20 language of 1132(a)(3) as authorizing her to bring a suit to obtain appropriate equitable relief. ECF No Section 1132(a)(3) allows a civil action: by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan[.] The subchapter includes relief sought under 1106, under which Innis seeks relief. Additionally, Braden sets forth a very similar claim to Innis s claim and cautions against dismissing a suit brought on behalf of the plan as a whole where the plaintiff asserts an actual injury to the plan. 588 F.3d at 593, 595 (citing, e.g., Fallick v. Nationwide Mut. Ins., 162 F.3d 410, 423 (6th Cir. 1998)); accord Thole v. U.S. Bank, No , 2017 WL , at *9 (8th Cir. Oct. 12, 2017) (stating [u]nder both 1132(a)(2) and (a)(3), the plaintiffs must show actual injury to the plaintiffs interest in the Plan under (a)(2) and to the Plan itself under (a)(3) to fall within the class of plaintiffs whom Congress has authorized to sue under the statute ); see also Mass Mut. Life Ins., 473 U.S. at 142 & n.9; cf. Soehnlen v. Fleet Owners Ins. Fund, 844 F.3d 576, 585 (6th Cir. 2016) (holding plaintiffs could not pursue a claim for injunctive relief where plaintiffs made no showing of actual or imminent injury based on prospective [tax and penalty] liability in the amount of $15,000,000 ). As previously discussed, Innis asserts an actual injury to the Plan. Applying 1132 and Braden, Innis has standing, on behalf of the Plan as a whole, to pursue a claim for injunctive or equitable relief for violations of B. Failure to State a Claim The Court now turns to whether Innis s complaint alleging violations of 1106(a) and 1106(b) states a claim upon which relief can be granted. Bankers Trust challenges Innis s 12

13 Case 4:16-cv RGE-SBJ Document 42 Filed 10/13/17 Page 13 of 20 complaint as pleading only conclusory, internally inconsistent allegations in support of [her] claim[]. ECF No. 22 at 13. In resolving a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the court must avoid ignor[ing] reasonable inferences supported by the facts alleged and not dr[a]w inferences in [Bankers Trust s] favor, faulting [Innis] for failing to plead facts tending to contradict those inferences. Braden, 588 F.3d at 595 (considering whether the complaint states a claim for breach of fiduciary duty in violation of 29 U.S.C. 1104). Just as a plaintiff cannot proceed if his allegations are merely consistent with a defendant s liability, so a defendant is not entitled to dismissal if the facts are merely consistent with lawful conduct. Braden, 588 F.3d at 597 (internal quotations and citations omitted). In essence, the court must determine whether Innis makes a prima facie showing that Bankers Trust acted as a fiduciary, breached its fiduciary duties, and thereby caused a loss to the Plan. Braden, 588 F.3d at Section 1106(a) Section 1106(a) disallows a Plan from engaging in a prohibited transaction with a party in interest. Under 1002(14) a party in interest includes any fiduciary, person providing services to such plan, an employer, an owner, a relative... of [the aforementioned individuals], or an employee, officer, director... or a 10 percent or more shareholder. 29 U.S.C. 1002(14). Innis alleges the Transaction violated three subsections of 1106(a): engaging with a party in interest, id. 1106(a)(1)(A); borrowing money from a party in interest, id. 1106(a)(1)(B); and acquiring shares improperly from a party in interest, id. 1106(a)(1)(E). ECF No Innis must identify the party in interest to plead Bankers Trust violated 1106(a). See Braden, 588 F.3d at Innis pleads Telligen is the party in interest, but includes TCI within the definition of Telligen. ECF No. 1 1 n.1, 27. Bankers Trust asserts this careless 13

14 Case 4:16-cv RGE-SBJ Document 42 Filed 10/13/17 Page 14 of 20 pleading repeatedly forces [Bankers Trust] to guess at [Innis s] claims and warrants dismissal because the complaint is no more than a barebones recitation of statutory language. ECF No. 22 at & n.10. However, Innis s complaint alleges [t]he ESOP Transaction allowed Telligen and/or its principal shareholders and/or other entities controlled by them to unload their shares in Telligen at an inflated price of $37.50 per share and saddle Plan participants with a loan to finance the transaction. ECF No Innis pleads the date the Transaction occurred. Id. 5. She pleads the price and number of shares sold to the ESOP Plan. Id. 5 7, 21. She generally identifies the seller in the Transaction as the party in interest. Id. 27, 29. The information in the complaint provides Bankers Trust fair notice of what the... claim is and the grounds upon which it rests. Twombly, 550 U.S. at 555 (omission in original). The Court finds Innis identifies a party in interest and alleges Bankers Trust violated its fiduciary duties during the Transaction, thereby causing a loss to the Plan of being burdened with a loan for more than fair market value. Therefore, construing the facts in the light most favorable to her, Innis states a claim for relief that Bankers Trust violated 1106(a). 2. Section 1106(b) Next the Court turns to the alleged violations of 1106(b). Section 1106(b) prohibits a fiduciary from engaging in certain transactions with the plan, including transactions for which the fiduciary receives consideration or acts on behalf of an adverse party. 29 U.S.C. 1106(b)(2), (3). Innis s complaint alleges two violations of 1106(b): acting on behalf of an adverse party, id. 1106(b)(2); and receiving consideration in connection with the plan assets, id. 1106(b)(3). ECF No. 1 30, The Court is mindful it should view the complaint s factual allegations in their totality. Braden, 588 F.3d at 594 (quoting Vila v. Inter-Am. Inv. Corp., 570 F.3d 274, 285 (D.C. Cir. 2009)). 14

15 Case 4:16-cv RGE-SBJ Document 42 Filed 10/13/17 Page 15 of 20 Innis s complaint contains no specific factual allegations supporting liability under 1106(b). With regard to the alleged violation of 1106(b)(3), Innis s complaint merely summarily states Bankers Trust received compensation from Telligen and/or its principal shareholders and/or other entities controlled by them as Trustee for the Plan in violation of [ 1106(b)(3)]. ECF No Innis does not plead what compensation Bankers Trust received or even allege any compensation came from the Plan assets. This [t]hreadbare recital[] of the elements of a cause of action, supported by mere conclusory statements does not plausibly allege a violation of 1106(b)(3). Iqbal, 556 U.S. at 678. Likewise, there are no allegations supporting a 1106(b)(2) violation. After quoting 1106(b)(2), the complaint states: Bankers Trust acted on behalf of Telligen and/or its principal shareholders and/or other entities controlled by them in connection with the Plan s loan and stock transactions in 2013 with Telligen and/or its principal shareholders and/or other entities controlled by them by causing the Plan to acquire Telligen stock. This greatly benefited Telligen and/or its principal shareholders and/or other entities controlled by them to the substantial detriment of the Plan, even though Bankers Trust was required to serve the interests of the Plan in connection with any such transaction. ECF No The complaint then concludes Bankers Trust engaged in prohibited transactions in violation of U.S.C. 1106(b)(2)[] in the ESOP Transaction. ECF No Section 1106(b)(2) provides a fiduciary shall not: in his individual or in any other capacity act in any transaction involving the plan on behalf of a party (or represent a party) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries[.] In alleging a violation of 1106(b)(2), Innis fails to make out a prima facie case as to how Bankers Trust acted on behalf of an adverse party in the Transaction. In Tibble, the Central District of California discussed the requirements for a claim under 1106(b)(2). 639 F. Supp. 2d 1074, (C.D. Cal. 2009), aff d on other grounds, 729 F.3d 15

16 Case 4:16-cv RGE-SBJ Document 42 Filed 10/13/17 Page 16 of (9th Cir. 2013), vacated, 135 S. Ct (2015), and vacated on reh g 843 F.3d 1187 (9th Cir. 2016) (en banc); see also Tibble v. Edison Int l, CV , 2017 WL , at *3 7 (C.D. Cal. Aug. 16, 2017) (discussing the procedural history). Citing cases from the Second and Ninth Circuits, as well as the Eastern District of Virginia and the Western District of Wisconsin, the district court granted summary judgment in favor of the defendants on the plaintiff s 1106(b) claim because the plaintiff did not allege [the fiduciary] stood on both sides of the transaction and failed to allege the fiduciary acted on behalf of or represented [the allegedly adverse party] in connection with the... transactions. Id. at (citing Donovan v. Bierwirth, 680 F.2d 263, 266, (2d Cir. 1982)). To violate 1106(b), there must be evidence of the fiduciary s formal role with the allegedly adverse party and that the fiduciary was actually acting on behalf of the adverse party in connection with that transaction. Id. at 1095 (citing Reich v. Compton, 57 F.3d 270, 290 (3d Cir. 1995)). A violation of 1106(b) requires more than a secret loyalty to the adverse party, but instead relies upon a formal relationship with the adverse party. Id. at (citing Compton, 57 F.3d at 290 & n.29). On the other hand, 1106(a) categorically prohibits direct and indirect transactions with a party in interest defined under 1002(14). Comm r of Internal Revenue v. Keystone Consol. Indus., Inc., 508 U.S. 152, 160 (1993) (noting the purpose of 1106(a) was to bar categorically a transaction that was likely to injure the [retirement] plan (citing S. Rep. No , at (1973), as reprinted in 1974 U.S.C.C.A.N. 4889, )); Tibble, 639 F. Supp. 2d at (comparing violations of 1106(b) with violations for breach of the duty of loyalty under 1104(a)). Here, the complaint does not allege Bankers Trust acted on behalf of a party (or represent[ed] a party) whose interests are adverse to the interests of the plan. 29 U.S.C. 1106(b)(2). There is no allegation of a formal role between Bankers Trust and the adverse party 16

17 Case 4:16-cv RGE-SBJ Document 42 Filed 10/13/17 Page 17 of 20 in the Transaction. Innis makes no allegations Bankers Trust stood on both sides of the [T]ransaction. Tibble, 639 F. Supp. 2d at The only formal role Innis alleges Bankers Trust undertook in the Transaction was acting as a trustee for the Plan. See ECF No. 1 1, 6, 13, 17, 19, 21. The Stock Purchase Agreement itself states Bankers Trusts served as trustee of the Plan, not on behalf of any other party. See ECF No. 23 at 16. To the extent Innis alleges Bankers Trust secretly acted on behalf of an adverse party, her claim is properly addressed under 1106(a), which categorically bars a transaction between the plan and party in interest. Keystone, 508 U.S. at 160; see Compton, 57 F.3d at 290 & n.29. Thus the Court holds the complaint fails to state a claim for a violation of 1106(b). 3. Exemption under 1108 Bankers Trust contends the record shows Telligen stock was independently valued and therefore the Transaction qualifies for an exemption permitting the Transaction. ECF No. 22 at The exemption Bankers Trust advocates 1108(e) permits the sale of qualifying employer securities by a party in interest to an ESOP if such acquisition... is for adequate consideration. See also ECF No. 22 at 14 15; 29 C.F.R e (discussing the exemption and defining adequate consideration). Adequate consideration is the fair market value of the asset as determined in good faith by the trustee or named fiduciary pursuant to the terms of the plan and in accordance with regulations promulgated by the Secretary [of Labor]. 29 U.S.C. 1002(18)(B). The role of courts in reviewing the adequacy of consideration in an ERISA case is to determine whether the fiduciary can show that the price paid represented a good faith determination of the fair market value of the asset. Henry v. Champlain Enters., Inc., 445 F.3d 610, 619 (2d Cir. 2006); see also Eyler v. Comm r of Internal Revenue, 88 F.3d 445, 455 (7th Cir. 1996) ( ESOP fiduciaries will carry the burden of proving that adequate consideration was paid 17

18 Case 4:16-cv RGE-SBJ Document 42 Filed 10/13/17 Page 18 of 20 by showing that they arrived at their determination of fair market value by way of a prudent investigation in the circumstances then prevailing. (quoting Donovan v. Cunningham, 716 F.2d 1455, (5th Cir. 1983)). To demonstrate the trustee determined the fair market value in good faith, the trustee must: 1) investigate the expert s qualifications, 2) provide the expert with complete and accurate information, and 3) make certain that reliance on the expert s advice is reasonably justified under the circumstances. Keach v. U.S. Trust Co., 419 F.3d 626, 637 (7th Cir. 2005) (citations omitted). The fiduciary duties set forth in 1104 apply to the trustee s conduct in obtaining fair market value and the court must examine the totality of the circumstances. Bruister, 823 F.3d at (citing Cunningham, 716 F.2d at ); Keach, 419 F.3d at ; Cunningham, 716 F.2d at (noting a fiduciary may satisfy its burden by showing it determined fair market value by way of a prudent investigation in the circumstances then prevailing ); see also 29 U.S.C (setting forth the prudent man standard of care). In Braden, the Eighth Circuit provided guidance on this issue. The Braden court held the defendants in ERISA fiduciary duty cases properly bear the burden to prove an exemption applies. 588 F.3d at It would be perverse to require plaintiffs bringing prohibited transaction claims to plead facts that remain in the sole control of the parties who stand accused of wrongdoing. Id. at 602 (citing Lowen v. Tower Asset Mgmt., Inc., 829 F.2d 1209, 1215 (2d Cir. 1987)). The burden accordingly lies with Bankers Trust to prove the 1108(e) exemption applies. Bankers Trust provided documents demonstrating it utilized Prairie Capital to evaluate the sale. See ECF No. 23 at 12 (stating Prairie Capital conducted our analysis in accordance with [29 U.S.C. 1002(18)(B)] ); id. at 14 (providing a summary of the Transaction Financing and stating a proposed purchase price of $37,500,000 and an initial stock price of $6.25, but not providing an analysis of the Transaction or a basis for approving the Transaction). But [a]n 18

19 Case 4:16-cv RGE-SBJ Document 42 Filed 10/13/17 Page 19 of 20 independent appraisal is not a magic wand that fiduciaries may simply wave over a transaction to ensure that their responsibilities are fulfilled. It is a tool and, like all tools, is useful only if used properly. Cunningham, 716 F.2d at 1474 (finding the defendants breached their duty of prudence and so could not establish they paid adequate consideration); see Brundle ex rel. Constellis Emp. Stock Ownership Plan v. Wilmington Trust N.A., 241 F. Supp. 3d 610, 634 (E.D. Va. 2017) (finding after a trial that the trustee had not proven by a preponderance of the evidence that the ESOP paid no more than adequate consideration where the trustee did not demonstrate its reliance on a financial advisor s report was reasonably justified ), reh g on other grounds denied, 2017 WL (E.D. Va.), appeal docketed, No (4th Cir. July 26, 2017). At this stage of the litigation, the Court cannot conclude the exemption applies. It remains to be seen whether reliance upon Prairie Capital s report was justified and thus whether the Transaction was for adequate consideration. Keach, 419 F.3d at 637. Conclusory statements that Prairie Capital s analysis was in accordance with ERISA alone are not enough to apply the 1108 exemption. The Court cannot determine on the record before it whether Bankers Trust determined fair market value in good faith while acting with prudence under 1104 during the Transaction. Cunningham, 716 F.2d at Consequently, the Court finds Bankers Trust has not met its burden for the 1108(e) exemption to apply. V. CONCLUSION The Court grants in part and denies in part Defendant s Motion to Dismiss. Innis does have standing to pursue her claim. Innis s complaint states a claim under 1106(a), but fails to state a claim under 1106(b). 19

20 Case 4:16-cv RGE-SBJ Document 42 Filed 10/13/17 Page 20 of 20 IT IS ORDERED that Defendant s Motion to Dismiss, ECF No. 21, is GRANTED IN PART and DENIED IN PART. Dated this 13th day of October,